New models to drive FY23F vehicle sales
- Li Auto’s 2Q22 revenue beat market’s estimate by 10% due to stronger EV deliveries, but 3Q22F EV delivery guidance disappointed us and consensus.
- We expect fewer vehicle deliveries in 3Q/4Q22F due to significant cannibalisation by new model L9.
- Retain Add. We lower our DCF-based TP to HK$191.0 due to lower EV delivery forecasts.
2Q22 revenue beats our expectation on strong vehicle delivery
Li Auto’s net loss (non-GAAP) extended from Rmb65m in 1Q22 (Rmb477m loss in 2Q21) to Rmb183m, mainly due to increased R&D expenses. EV revenue rose 73% yoy (-9% qoq), driven by EV delivery growth of 63% yoy (-10% qoq) in its EREV model Li ONE (launched in Dec 19, selling price at Rmb348k) and ASP increase of 6% yoy (+1% qoq). The decrease of EV sales in 2Q22 was mainly due to production disruption during the Covid-19 wave in China. Vehicle margin expanded 250bp yoy (-130bp qoq) to 21.2% due to strong sales in high-priced Li ONE and better economies of scale. Opex-to-sales ratio increased to 31.5% in 2Q22 (compared with 27% in 2Q21 and 24% in 1Q22), due to increase in R&D expense (+134% yoy) for new module launches.
2H22F vehicle shipment cut due to cannibalisation by new models
The company guided for vehicle shipments ranging from 27k to 29k units (+8-16% yoy) in 3Q22F. We find this disappointing as Li ONE is somewhat dated (launched in Dec 2019) and could be significantly cannibalised by the Li L9 (EREV SUV targeting family customers, selling price at Rmb458k/US$70k, delivery begins at end-Aug 22). We expect the company to deliver c.10k L9 in Sep 22 and c.11k units/month in 4Q22F. We estimate the Li L8 (EREV SUV, price at Rmb380k/US$58k), the refreshed model for Li ONE, to start delivery in Nov 22 and drive strong vehicle shipments in 4Q22F. We now project 48k vehicle shipments (+71% qoq, or 38% yoy) in 4Q22F, supported by a full quarter of L9 sales and contribution from the L8. We cut vehicle shipments by 29k in 2H22F, in view of the greater- than-expected cannibalisation impact by launches of new models L9 and L8. We now forecast 136k/228k/303k (+51%/67%/33% yoy) vehicle deliveries in FY22F/23F/24F.
Vehicle margin to improve in 2H22F on softened battery costs
We expect vehicle margin to recover to over 22% in 3Q/4Q22F (22.6% in 1Q22, 21.5% in 2Q22) due to softened raw material costs for battery and better vehicle margin on the L9. The company first launched the L9 model at over Rmb450k/US$70k (the premium EV segment). We estimate vehicle margin to widen by 120bp yoy to 22.5% in FY22F due to the L9 launches.
Retain Add with a lower TP of HK$191.0
We retain Add due to the robust EV delivery outlook and growing market share in China’s NEV market. We cut FY22-24F EPS by 21-23% as we decrease our EV delivery forecasts. Our DCF-based TP is lowered to HK$191.0 (WACC: 11.2%, terminal growth rate 5%, COE: 12.5%, RFR: 3.5%), equivalent to 180x P/E and 113x EV/EBITDA in CY24F. Share price re-rating catalysts include good take-up rate at the Li L9 and Li L8 launches. Downside risks: keener competition in smart EV market and sustained supply chain constraints.